Wal-Mart Plans to Grow by Shrinking

The store that perfected the "big box" model is slimming down. During its annual analyst conference in Bentonville, Ark., executives told retail analysts that future Wal-Mart stores will be 8 percent smaller, cost 16 percent less to build, and run more efficiently than current stores.

Currently, Wal-Mart discount stores average just over 100,000 square feet, while Supercenters are nearly twice that size. The reduction in footprint coincides with an overall shift in Wal-Mart strategy to maintain its supply chain and bulk rate pricing advantages while offering fewer brands and keeping tight control on overhead costs.

"We've found ways to increase sales with new designs, re-merchandising, and the application of technology," a spokesperson tells FastCompany.com.

While Wal-Mart looks to shrink its brick and mortar volume, it still plans to grow. A new health and wellness section launched at walmart.com Tuesday, and executives promised to aggressively cut store prices going into what is expected to be the second-worst holiday retail season in four decades (the worst being last year) while still projecting 1% growth over last year. The chain also announced on Thursday a customer service and support program meant to compete with Best Buy's service—customers can buy pre-paid cards ranging in price from $99 to $339 covering everything from installation of televisions routers to complete home threater home networking systems (service includes a consultation and tutorial).

The shrinking stores will also help Wal-Mart accommodate its strategy, which calls for penetrating more urban markets (Wal-Mart Manhattan, perhaps?) and expanding broadly overseas, particularly in China and Brazil. The company will spend slightly less on new store openings here next fiscal year (between $1.4 billion and $1.6 billion, down from between $1.6 and $1.7 billion this year), but total capital spending in 2010 is projected to be between $12.5 and $13.1 billion, up from $11.5 billion in 2009.

Just don’t expect to see stores shrinking in a neighborhood near you any time soon, as companies the size of Wal-Mart are rarely nimble. New ideas generally take about four years to work their way into practice, so any stores opening in the next few years were likely already in the pipeline a few years ago, and therefore very much "big box."

One question remains, though: What happens to all of those big boxes once Wal-Mart shifts to smaller stores? Wal-Mart has a history of vacating regular old humongous Wal-Mart's for shiny new SuperCenters just blocks away, at times leaving small towns with empty edifices in the center of their retail districts that no one but Wal-Mart could afford to occupy (adding insult to the initial injury of putting mom-and-pop stores out of business in the first place).

The Wal-Mart spokesman acknowledged that big box stores could be vacated—again—for smaller stores, even within single towns. Another scenario: larger stores could be subdivided, with extra space leased out to smaller businesses.

How about it, mom and pop? Want to open up the shop adjacent Wal-Mart?